ACC3600: Auditing and Assurance - Souper Bowl Revenue Analysis

This report, prepared by an audit senior at Aoife & Josephine LLP, analyzes the revenue of Souper Bowl Inc. for the years 2016 and 2017, identifying potential risks of fraudulent financial reporting. The analysis highlights several key factors, including the sampling method used in 2016, which relied on random sampling and could have missed errors. The report also addresses the impact of temperature and snow accumulation on sales, noting the difficulty in correlating revenue with weather conditions and the potential for management to manipulate data. Furthermore, the high number of transactions and multiple locations present challenges for auditors. The report includes a memo to the board of directors, detailing the findings and using visualization and tabular analysis to identify trends and anomalies, such as a significant increase in March 2017 sales and dates with no revenue recorded. The report emphasizes the need for further investigation into these discrepancies to ensure the financial statements are free from errors and fraud.

Auditing and Assurance
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Factors may increase the risk of fraudulent financial reporting in Souper Bowl’s 2016
revenues?
Revenue recorded by any business organization can be considered as one of the primary key
performance indicators in business. It is important for an auditor to conduct detailed analysis
of total revenue generated in a particular accounting period. Here audit for the revenue
generated in the year 2016 will be conducted as it will form base for the audit of revenue in
the year 2017. Following are some of the factors in the revenue recording process of 2016
that might generate risk of fraudulent financial reporting-
Method of sampling in 2016- one of the primary factors that will have negative impact on
auditing in 2017 is the sampling method used for conducting audit on the revenue generated
in 2016. It is mentioned in the given scenario that auditors in previous year have been using
random sampling for testing revenue. Risk of fraudulent financial statements increases in
case of random sampling as management or auditors is not using a specific method for
conducting sampling. There is a high probability that any miss statement or errors will be
totally ignored in preparation of samples through random sampling (Williams & Dobelman,
2017). Effective replacement of Sampling could be systematic sampling their population is
divided into specific method so that population selected for sampling is effective and
efficient.
Fluctuation with temperature and snow accumulation- It is also provided in the given
scenario that the revenue of the organization is significantly dependent on fluctuations in
temperature and snow accumulation. Sale of soup is expected to increase with low
temperature in different areas it is very difficult for auditor to teacher with revenue on a
particular date. The efficiency of auditor to analyse this data will be very difficult and it will
result in risk of fraudulent financial statements. There is a probability that management might
decrease revenue of the organization on particular dates in a financial year and provides
justification that such dates were warmer days and sales were low on such date. It will be
very difficult for auditor to analyse the temperature on each of the day where low revenue
was generated (Robinson, Henry, Pirie & Broihahn, 2015).
Number of transactions and locations- Management of the organization has been operating on
four different locations and the number of transactions on a particular date is also very high.
Creating sample for a large amount of data is always very difficult task for auditor and it can
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result in increased audit risk. In addition to that temperature at different locations on a similar
date might fluctuate which will also create difficulties for the auditor.
Memo
To: Board of directors Souper Bowl Inc.
From Senior Auditor, Aoife & Josephine LLP
Date – December 31, 2017
Subject- Disaggregated Revenue Analytics and factors increasing audit risk
Purpose- Purpose of this analysis is to identify plausible trends and expectations that require
further investigation on the part of auditor ensure that financial statements are free from
errors, mistakes, and fraud.
Data- Following is the revenue data related to the year 2016 and 2017-
Total sales, 2016 Total sales, 2017
Store type 1 3890244.32 3935814.75
Store type 2 5781201.43 6040997.4
Store type 3 7744638.9 8079430.08
Total 17416084.65 18056242.23
Procedure- Following are the assertions that are identified as a significant risk in relation to
revenue generated by the organization-
1. Method of sampling in 2016
2. Fluctuation with temperature and snow accumulation
3. Number of transactions and locations
Visualization analysis 1- Monthly Sales
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Series 1- 2016
Series 1- 2017
In this analysis monthly sales of the organization in both the financial years will be identified
in order to identify the risk of fraud before finalizing financial statements. Percentage sales
recorded in the month of March is 19% higher as compared to 2016. This type of increase in
sales is not identified in any of the other months under consideration (William Jr., Glover &
Prawitt, 2016). This will require special attention of audit and auditors should retrieve
additional evidence to justify this increase in revenue.
Visualization analysis 2- Store sales
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Series 1- 2016
Series 1- 2017
Trend analysis can be used in this scenario in order to examine the risk of fraud in financial
statements. On the basis of this graph it can be said that overall revenue generated by 3 stores
categorized by organization is increasing over the period of time. According to graphical
representation, series 1 is lower as compared to series 2 line. It is also identified by auditor
that overall sales of the organization in 2016 were lower due to warmer weather as compared
to previous years (Knechel & Salterio, 2016). Therefore it can be said that risk of fraudulent
activity in this scenario is minimum.
Tabular analysis 3- No sales
Dates Sales
01-01-2017 0
01-07-2017 0
02-07-2017 0
03-07-2017 0
04-07-2017 0
05-07-2017 0
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06-07-2017 0
07-07-2017 0
During the financial year under consideration, there are some dates on which there are no
sales in every store location of the organization. In addition to that there is no revenue from
the date 1st July 2017 to 07th July 2017. It is very unusual to have no revenue generated in all
the locations on similar dates. Auditors of the organization are required to analyse this matter
in further detail. For this purpose auditors will be required to identify that if there is a certain
type of corporate vacation on these consecutive 6 days. In addition to that records for each of
the date with no revenue should be examined by auditor in detail.
I expect that management of the organization will provide reasonable assurance to auditors
with respect to the above mentioned matters.
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Reference
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Routledge.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and assurance services: A
systematic approach. McGraw-Hill Education.
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific
Book Chapters, 109-169.
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